Cabinet approves new strategic disinvestment process

News:Union Cabinet has approved a new process of strategic disinvestment with a view to expediting privatization of select PSUs.


What are the new changes?

  • Under the new policy, the Department of Investment and Public Asset Management (DIPAM) under the Ministry of Finance has been made the nodal department for the strategic disinvestment sale.
  • Currently, PSUs for strategic sale are identified by NITI Aayog.But the new policy has now allowed DIPAM and NITI Aayog to jointly identify PSUs for strategic disinvestment.
  • Further, the DIPAM secretary would now co-chair the inter-ministerial group on disinvestment along with the secretary of administrative ministries concerned. 

Additional information:

What is disinvestment?

  • Disinvestment is defined as the action of an organisation or government selling or liquidating an asset or subsidiary.It is also referred to as divestment.
  • In the case of Public Sector Undertakings(PSU), disinvestment means Government selling/ diluting its stake (share) in PSUs in which it has a majority holding.
  • Disinvestment is carried out as a budgetary exercise under which the government announces yearly targets for disinvestment for selected PSUs.
  • Government has set the disinvestment target of 1.05 lakh crore for the current financial year 2019-20.

Significance of disinvestment:

  • It improves the structure of incentives and accountability of PSUs in India.
  • It can help in the revival of loss-making public sector enterprises(PSU).
  • It can help in financing the increasing fiscal deficit.
  • It can also finance the large-scale infrastructure development, defense, education and healthcare projects.

Concerns on disinvestment:

  • The process of disinvestment is not favoured socially as it is against the interest of socially disadvantageous people.
  • After disinvestment, the employees of Public Sector Units(PSUs) will lose their jobs.
  • Government’s dividend income will also decline as it will have less shares in the PSUs.